Posted on October 21, 2020
I have two points and two charts about how the extra federal unemployment benefits have lost most of their effect of stimulating the economy by providing funds to help tide unemployed workers over until the economy recovers.
- You may not be surprised, but the extra federal unemployment benefits provided by the President’s executive action of August 8 have become relatively small, and given the limited funding source, will eventually run out altogether. The amount of total benefits–including both state and federal payments–moved down sharply in the first part of August following expiration of the extra $600 per week federal benefit, but then benefits moved part of the way back up after the President’s executive action that provided $300 per week to qualifying unemployed workers for a limited time (see first chart). Since mid-September, however, benefits have moved back down again.
- We can tell that diminishing federal benefits are the reason for the recent decline in total payments, as the share of total unemployment benefit payments consisting of the extra $300 per week federal benefit (officially called FEMA lost wage disaster payments) has dropped considerably in recent weeks (see second chart). In the middle part of September, about half of total benefits–the combination of state and federal payments–consisted of the extra federal benefit. However, as many states have exhausted their allocated amounts from the federal funding source, the extra federal benefit is now a small share of total unemployment benefits. We calculate that about $32 billion, or 73 percent, of the total $44 billion of federal funds allocated have been disbursed. The remaining $12 billion or so stems from states that have been slow to disburse their allocations, as they must update their computer systems for the new federal program. Presumably those remaining states will disburse their amounts in one-time payments to recipients for amounts they have retroactively qualified for, mostly unemployed periods back in August. When those payments will be made is unclear. We’ll see if policymakers can agree to resume higher federal benefit payments at some level, as negotiations continue between the House of Representatives and the Administration on overall stimulus legislation.
